Higher rents putting a crimp in savings rates coupled with higher prices for houses means first-time homebuyers have to wait that much longer!
Some may have noticed that the rent vs buy comparison has been a common thread for the last few articles that have appeared here.
The reason is that many of the decisions familiar to forty-plus year olds when we were in our twenties no longer hold true for a good percentage of those in the millennial generation today.
In 1984 after earning my MBA, the path that I took was similar to so many others at the time which was to get a good job, rent an apartment for a few years, get married, continue to rent, have a baby and then buy a house.
Today that scenario has changed because rents constitute a higher percentage of monthly expenses, careers are less secure, millennials therefore are marrying and having kids later and home prices relative to income have grown from 1.7 times in the 70’s to 2.6 times today.
An article at the Boston Globe, ‘First homes coming later for young Americans‘, tells more of the story…
‘Short of cash and unsettled in their careers, young Americans are waiting longer than ever to buy their first homes.
The typical first-timer now rents for six years before buying a home, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is age 33 — in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.
The delay reflects a trend that cuts to the heart of the financial challenges facing millennials: Renters are struggling to save for down payments. Increasingly, too, they’re facing delays in some key landmarks of adulthood, from marriage and children to a stable career, according to industry and government reports.
These shifts help explain why homeownership, long a source of middle-class identity and economic opportunity, has started to decline. The share of the US population who own homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.
And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times income.
Millennials are ‘‘still very interested in buying a house, but they’re delaying that decision,’’ said Svenja Gudell, chief economist at Zillow. ‘‘Once they start having kids, they begin looking for homes. We’re also finding that — given how much rental rates are currently rising — a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.’’
Rising rental prices have complicated the task of socking away money for a down payment. Rental prices nationally have grown at roughly twice the pace of average hourly wage growth, which was 2.1 percent over the past year.
A result is that those prices are consuming more income. A striking 46 percent of renters ages 25 to 34 — the core of the millennial population — spend more than 30 percent of their incomes on rent, up from 40 percent a decade earlier, according to a report by Harvard University’s Joint Center of Housing Studies. (The housing industry generally regards a figure above 30 percent as financially burdensome.)‘
Article written by Michael Haltman, President of Hallmark Abstract Service in New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.
Learn more at the Hallmark Abstract WhiteBoard Animation here.Google+